After including banking and finance companies, the sample’s sales grew at a similar rate of 17.5 per cent.

ET Intelligence Group: India Inc was able to clock a double-digit revenue growth for the fifth consecutive quarter in the three months to December 2018, but this was at the expense of profits and profitability. The pressure on margins and on the bottom-line is expected to remain in the next two quarters amid slack demand and volatile input prices.

For a 13-quarter common sample of 2,471 companies excluding banks and finance companies, net sales increased by 17.8 per cent year-on-year while net profit fell by 33.1 per cent, the sharpest fall in nine quarters. The quarterly profit was marred by a net loss of Rs 26,961 crore by Tata Motors owing to asset impairment. When adjusted for the loss, net profit of the sample fell by 7.4 per cent after showing a double-digit growth in the previous two quarters.

Operating margin dropped by 220 basis points (bps; 100 bps = 1 per cent) to a seven-quarter low of 13.7 per cent. The fall was inevitable given a higher increase of 20 per cent in aggregate expenses compared with the topline growth.

“Topline growth was chased by a whole host of companies, sometimes at the cost of margins. Inventory losses due to crude price fluctuations marred the performance of quite a few companies,” said Deepak Jasani, research head, HDFC Securities.

After including banking and finance companies, the sample’s sales grew at a similar rate of 17.5 per cent. The fall in net profit was lower at 26.1 per cent, reflecting a recovery posted by some banks at the bottom line following lower slippages of assets to nonperforming assets and hence lower provisioning.

“Among small- and midcapstocks, struggle was visible at both the topline and bottom line. High competitive intensity, disruption due to technological and regulatory changes and liquidity squeeze seem to have affected, them,” said Jasani.

Double-digit Topline Growth

Another worrisome trend is that more sectors are now showing stress. Apart from sectors such as infrastructure, power, realty, and telecom, which have been under stress for quite some time, sectors including automobiles and ancillaries, chemicals, finance, oil marketing reported lacklustre numbers in the December quarter.

With no major signs of turnaround in demand scenario, the weak trend is expected to continue in the next couple of quarters as the country gears up for the general elections. “Going by the recent numbers of auto sales and import-export data, we think the March 2019 and the June 2019 quarters may also be challenging. After that, once the new Govt settles in, we may see resurrection of sentiments, new policy guidelines and fresh momentum in the economy,” said Jasani.